Budget 2010: CGT

In a surprising turnaround the 2010 UK Emergency Budget has not brought about the extensive changes to Capital Gains Tax that many feared.

When the Liberal Democrats and the Conservatives joined forces to form the Coalition, most people were certain that Nick Clegg would be allowed to enforce his ideas for Capital Gains Tax, namely by increasing the flat rate and connecting it to income, meaning that some people could have been hit by Capital Gains charges of up to 50 percent.

However, Chancellor George Osborne has blocked this change, after much opposition from fellow Conservative MPs, outraged taxpayers and even a newspaper campaign from The Telegraph. From today onwards the basic rate of CGT will stay at 18 percent, however high-rate taxpayers will have their rate increased to 28 percent. The Treasury has stated that this rise will affect less than 100,000 people.

Chancellor Osborne has also kept CGT tax free allowances at £10,100, again giving relief to worried investors who thought the allowance would be cut. Entrepreneurs who go on to sell their business will also benefit from an increase in CGT lifetime allowance, going up to £5million from the previous figure of £2million.

In the Liberal Democrat’s initial manifesto they claimed that by raising CGT in line with income tax the UK Government could recoup up to £1.9billion, however the Treasury states that the new changes will raise £725million this year, rising to £925million in the following year.

Mr Osborne said that the reason for the CGT rethink was influenced by predictions that the income-connected raise could actually have negative effects on the economy by restricting growth on the property market and discouraging asset-holders from selling on, in turn reducing tax revenue.

The news was met with general acclaim by the world of finance, from The Telegraph: “While any increase in tax is unwelcome, it is at least a reasonable compromise from the original outright daylight-robbery proposals of the Business Secretary”, and mortgage broker Melanie Bien said: “The increase in capital gains tax was expected but much more modest than feared. With rumours flying around of an increase to 40 or even 50 percent, it looks as though the Chancellor bottled it in the face of opposition from back-bench MPs and traditional Conservative voters”.